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1. A Tough Opponent for Trump: Inflation

Author:
Matteo Bursi
Publication Date:
01-2025
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
According to several pre-election polls, the economy was perceived by many US voters as the key topic in deciding whether to vote Democratic or Republican in the 2024 presidential elections.[1] During Joe Biden’s administration, the US GDP grew steadily and unemployment reached very low levels. Nevertheless, for the first time since 2004, the Democratic Party lost the presidency, the popular vote, the House of Representatives and the Senate. This seemingly paradoxical situation, according to some commentators, finds an explanation in the issue of inflation.[2] From this perspective, a significant number of Americans reportedly voted for Donald Trump due to the sharp price increases experienced during the past four years, blaming the outgoing Democratic administration for failing to sufficiently protect the purchasing power of US citizens and businesses. During and after the election campaign, the tycoon has claimed that he can curb inflation, emphasising his plan to intensify the exploitation of domestic energy resources. This proposal – covered by one of the many executive orders signed by Trump upon taking office – could help contain price increases but is unlikely to be a definitive solution. Likewise, its effectiveness could be largely offset by inflationary pressures arising from other policies that the Republican politician has promised to implement.
Topic:
Domestic Politics, Economic Policy, Inflation, and Donald Trump
Political Geography:
North America and United States of America

2. How DeepSeek has changed artificial intelligence and what it means for Europe

Author:
Bertin Martens
Publication Date:
03-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
By mid-2024, artificial intelligence large language models (LLMs) were running into diminishing returns to scale in training data and computational capacity. LLM training began to shift away from costly pre-training to cheaper fine-tuning and allowing LLMs to ‘reason’ for longer before replying to questions. Fine-tuning uses chain-of-thought (CoT) training data that includes questions and the logical steps to reach correct answers. This increases the efficiency of learning for smaller AI models, such as DeepSeek. CoT data can be extracted from large ‘teacher’ LLMs to train small ‘student’ models. These changes shift the cost structure of AI models from high pre-training costs to lower fine-tuning costs for model developers and more inference costs for users. While smaller models are cheaper to use, a positive AI demand effect is likely to exceed the negative price effect. Price competition between models will increase, resulting in tighter margins for AI firms. Specialised models can still fetch premium prices. Cheaper LLMs are an opportunity for European Union companies to catch up in building smaller AI models and applications on top of LLMs. Increased demand for AI services will require more investment in computing infrastructure, including in the EU. Investing in large LLMs and the corresponding hyperscale infrastructure is riskier, especially as price competition between models increases. Knowledge extraction between AI models puts pressure on model developers to protect their investments against free-riding by others. It also creates a dilemma for policymakers: should they favour free-riding to promote competition and innovation, or should they clamp down and reinforce monopoly rents to stimulate investment in AI models? Past policy will not be an appropriate response in a world that offers vastly expanded opportunities for knowledge pooling and innovation at lower cost.
Topic:
Science and Technology, European Union, Economic Policy, Microeconomics, Innovation, Artificial Intelligence, Large Language Models (LLMs), and DeepSeek
Political Geography:
Europe

3. Transatlantic Cooperation on Semiconductors: A US Perspective

Author:
Julia Tréhu
Publication Date:
02-2024
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Semiconductors are essential for the global economy, but recent supply chain disruptions and geopolitical tensions have highlighted new risks, leading to new policy approaches. US semiconductor strategy centres around three objectives. First, the funding provided through the CHIPS and Science Act is part of a larger push to strengthen domestic industry and manufacturing. Second, the US seeks to deny strategic adversaries of key technology through export controls. And third, it aims to secure the supply chains for critical technologies. The European and American semiconductor sectors are already tightly intertwined, and further coordination has occurred through forums like the Trade and Technology Council. But challenges remain, including the risk of a subsidy race. Further transatlantic cooperation on key aspects of these new industrial policies can ensure the realisation of shared objectives for a more resilient semiconductor sector.
Topic:
Science and Technology, Economic Policy, Transatlantic Relations, Industry, and Semiconductors
Political Geography:
North America and United States of America

4. Beyond Crises: The future of Special Drawing Rights as a source of development and climate finance

Author:
Didier Jacobs
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Oxfam Publishing
Abstract:
The allocation of Special Drawing Rights (SDRs) during the COVID-19 pandemic has generated considerable interest in using SDRs as a tool for development and climate finance. This policy brief argues that the monetary logic that underpins SDRs justifies regular allocations of at least $200 billion a year, and more than doubling the share of low-and middle-income countries. Once allocated, governments can use SDRs in multiple ways, including to fund some development or climate projects. The brief also discusses reforms to deepen the SDR system in the interest of all countries.
Topic:
Development, Climate Finance, Sustainable Development Goals, Economic Policy, and IMF
Political Geography:
Global Focus

5. Instruments of economic security

Author:
Conor McCaffrey and Niclas Poitiers
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Geopolitical and economic developments, including Russia’s invasion of Ukraine and trade disruptions during the COVID-19 pandemic, have raised concerns about the European Union’s exposure to hostile countries. The challenge of improving European economic security (which we narrowly treat here as exposure to foreign trade or production shocks) has grown in importance, with various relevant policy measures introduced at EU level. Focusing in particular on the threat posed by economic coercion, this paper begins by assessing the nature of this threat, before outlining two lessons that can be drawn from two recent instances of this coercion in action: China’s actions against Lithuania and Australia respectively. First, while much of the policy debate has focused on imports, the threat to EU exporters should not be ignored. Second, while coercion may not cause any macroeconomically significant harm, this may mask severe impacts on the targeted industries, which should be considered in any policy responses. The EU has significantly added to its policy tools in this area, though some of the instruments introduced under the umbrella of economic security go beyond the definition we consider. An effective response should be built around: building a deeper understanding of the risks facing the EU; improving diversification of both exports and imports; using targeted industrial policy in the limited sectors where the risks warrant intervention; and managing and limiting the fallout of any shocks using ex-post instruments.
Topic:
European Union, Economic Policy, Economic Security, and Coercion
Political Geography:
Europe

6. Nuclear arms control policies and safety in artificial intelligence: Transferable lessons or false equivalence?

Author:
Eoin Micheál McNamara
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
Multiple nuclear arms control treaties have collapsed in recent years, but analogies associated with them have returned as possible inspiration to manage risks stemming from artificial intelligence (AI) advancement. Some welcome nuclear arms control analogies as an important aid to understanding strategic competition in AI, while others see them as an irrelevant distraction, weakening the focus on new frameworks to manage AI’s unique and unprecedented aspects. The focus of this debate is sometimes too narrow or overly selective when a wider examination of arms control geopolitics can identify both irrelevant and valuable parallels to assist global security governance for AI. Great power leaders frequently equate AI advancement with arms racing, reasoning that powers lagging behind will soon see their great power status weakened. This logic serves to intensify competition, risking a spiral into more unsafe AI practices. The global norm institutionalization that established nuclear taboos can also stigmatize unethical AI practices. Emphasizing reciprocal risk reduction offers pragmatic starting points for great power management of AI safety. This research is part of the Reignite Multilateralism via Technology (REMIT) project, funded by the European Union’s Horizon Europe research and innovation programme under Grant Agreement No. 101094228.
Topic:
Defense Policy, Arms Control and Proliferation, Cybersecurity, Economic Policy, Artificial Intelligence, and Strategic Competition
Political Geography:
Russia, Europe, and United States of America

7. Indonesia’s growing clout: Domestic, regional, and global drivers

Author:
Bart Gaens and Olli Ruohomäki
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
While Indonesia still stands out as one of the stronger democracies in Southeast Asia, its democratic credentials remain flawed. Nevertheless, public support for the current administration has remained high thanks to sustained economic growth, welfare measures and large infrastructure projects. Indonesia has continued to bolster its international status through ASEAN, even if its position is one among equals. Within the organization, Jakarta has aimed to play the role of democracy promoter and bridge-builder. While China’s influence in the country has grown, Indonesia has sought a middle ground within the great-power competition, also pursuing partnerships with European countries, Japan, Russia, and the Gulf countries in order to diversify its political and economic relations. This offers opportunities for the EU. However, Europe’s declining image in Indonesia, colonial history and perceived double standards are obstacles to strengthening EU-Indonesia relations. Challenges remain for Indonesia in its quest to become a global player. The country will need to contribute solutions to both regional and global issues, and its hedging game and strategic autonomy in foreign-policy choices may become complicated due to increasing global expectations and responsibilities.
Topic:
Democracy, Geopolitics, Economic Policy, and Strategic Autonomy
Political Geography:
Indonesia and Southeast Asia

8. China’s approach to AI standardisation: State-guided but enterprise-led

Author:
Junhua Zhu
Publication Date:
08-2024
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
AI standardisation is a major battleground in the international AI race, in which states compete against each other for standard-setting power. China sees AI standardisation as a sector in which it could become a norm-maker rather than a norm-taker. The global landscape of AI standardisation is undergoing a phase of reconstruction. The US and China are discussing new bilateral standardisation frameworks, while the significance of pre-existing multilateral standardisation frameworks is declining. The Chinese approach to AI standardisation is found to be heavily reliant on the corporate sector, following an enterprise-led and state-guided pattern. The state cooperates closely with the private sector in a community of practice, acting as a catalyst in the early stage, a supporter in the mid-stage, and a supervisor in the later stage of the AI standardisation process. Enhancing a contextualised understanding of the fast-changing landscape of AI standardisation in China is critical for European policymakers to safeguard Europe’s competitiveness, preserve European values, and engage in dialogue on global AI governance.
Topic:
Science and Technology, European Union, Economic Policy, Artificial Intelligence, and Standardization
Political Geography:
China and Asia

9. Does Economic Policy Uncertainty Impact Firm GVC Participation? Microdata Evidence from India

Author:
Ketan Reddy, Subash Sasidharan, and Shandre Mugan Thangavelu
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
In this study, we examine the implications of economic policy uncertainty on global value chain (GVC) participation and the integration of Indian manufacturing firms using firm-level data. Using panel data from 2004 to 2021, we find that economic policy uncertainty (EPU) impedes GVC participation and firm integration. Further, we find that the impact of EPU on GVC participation operates through the financial constraint channel with highly leveraged and low-liquidity firms. Using survival analysis, we also highlight that higher EPU results in higher exit from GVCs and reduces entry into GVCs.
Topic:
Economic Policy, Manufacturing, Global Value Chains, and Microdata
Political Geography:
South Asia, India, and Asia

10. Pakistan's Declining Human Development Index (HDI) and the Requisite Policy Reforms

Author:
Shehla Saleem Mughal and Zaheer Liaqat Baig
Publication Date:
07-2024
Content Type:
Journal Article
Journal:
South Asian Studies
Institution:
Department of Political Science, University of the Punjab
Abstract:
This paper is an attempt to study the Human Development Index (HDI), its components and trend over the last ten years. It has strived to understand the relationship between policy choices adopted by the policy makers to devise economic policies and their impact on the standards of living or per capita income. Similarly, it has conducted to study how the budget expenditures in the health and education sectors in Pakistan impact the key human development indicators like life expectancy and average levels of education. At a time when Pakistan faces ongoing challenges in these sectors, understanding how public spending affects human development is not doubt, of critical importance for informed policymaking. The analysis focuses on secondary data obtained from government budget reports, health statistics, and education assessments. It examines trends in budget allocations and explores how differences in funding levels affect public health outcomes and educational attainment. Research highlights that, inadequate educational funding contributes to lower mean education levels while inadequate investment in health can lead to lower life expectancy rates. The key findings suggest that prioritizing public needs, in the form of increased public spending on health and education and provision of favorable environment for sustainable standard of living, is positively associated with improvements in life expectancy and educational outcomes. This relationship underscores the importance of prioritizing these sectors within national budget frameworks. The findings encourage the policy makers to understand that strategic investments in human capital are fruitful and yield long-term benefits for the economy and society. The study is significant as it emphasizes the need for efficient allocation of resources and calls for a shift in policy priorities to improve standard of living along with up-lifting the health and education services. Hence, the research serves as a valuable resource for advocacy groups seeking increased funding for these vital areas of human development in Pakistan. This study solicited for a adopting a comprehensive approach towards public policy and investment. Moreover, it intends to supplement the existing research by establishing a relationship between policy measures including human development indicators and budgetary expenditures with a special emphasis to improvement in standards of living and fostering social and economic progress in Pakistan.
Topic:
Development, Reform, Economic Policy, Human Development, and Budgeting
Political Geography:
Pakistan and South Asia